Everything I Have Is Yours: The True History of The IRSby Marjorie DorfmanMost of us grimace at the acronym, "IRS," because we all know what it means as far as our hard-earned dollars are concerned. But what is the history behind this maligned division of the US Treasury Department? If we know, does it mean we can stop it? Read on for more information, no matter which tax bracket you may find yourself in.

The Internal Revenue Service is a 19th century phenomenon. In our nation's early history, we had few taxes to pay, not to mention just a few people who could have paid them in the first place. From 1791-1802, internal taxes on distilled spirits, snuff, carriages, refined sugar, slaves and tobacco supported the early government. Congress abolished these internal taxes in 1817 and replaced them with tariffs imposed on imported goods to provide the funds necessary to run the government.

In 1862, in order to support the Civil War effort, Congress enacted the very first income tax law. It was an omen of worse things to come as it was based on the principles of graduated taxation. During The War Between The States, a person earning up to $10,000 dollars per year paid tax at the rate of three percent. Those with higher incomes paid taxes at a higher rate. Sales, excise and inheritance taxes also made their annoying debuts. In 1866, internal revenue collections yielded more than 310 million dollars, their highest point in the nation's ninety-year history.

The Act of 1862 established both the Bureau of Internal Revenue and the office of Commissioner of Internal Revenue, granting the power to assess, levy and collect taxes as well as the right to enforce tax laws through property seizure and prosecution. Neither powers nor definition have changed at all since that time.

In 1868 there was another shift in the vicious cycle of taxation; this time Congress focussed on tobacco and distilled spirits, and in 1872 eliminated the income tax. It was revived again for a short period of time in 1894, and in 1895 the US Supreme Court decided that income tax was unconstitutional. Unfortunately, this decision was not meant to be and in 1913, just when everyone thought it was safe to earn a lot of money, the 16th Amendment to the Constitution reared its very expensive head. Now Congress had the authority to tax personal income and a subsequent revenue law ensured the taxation of corporations as well.

Internal revenue collections surpassed the billion-dollar mark for the first time in 1918. By 1920, they totaled 5.4 billion dollars. World War II increased collections to $7.3 billion dollars. By 1945, with the introduction of withholding taxes on wages, the number of taxpayers grew to 60 million in number and tax collections rose to $43 billion!

During the 1950s, the agency was reorganized and the Bureau of Internal Revenue name was changed (and not to protect the innocent this time) to the Internal Revenue Service. No longer a patronage system, the IRS commissioner and chief counsel are selected by the president and confirmed by the Senate.

In 1981, Congress enacted the largest tax cut in history, approximately $750 billion dollars, over a period of six years. Two subsequent tax acts, one in 1982 and the other in 1984 offset this by attempting to raise approximately $265 billion dollars. Far-reaching reforms to the tax system were made in 1986 when President Reagan signed the Tax Reform Act. Individual income tax was lowered from 50% to 28%, which is the lowest it had been since 1916. The act also called for a $120 billion dollar increase in business taxation and a corresponding decrease in individual taxation over a period of five years.

Other changes occurred over the years. In 1990 taxes were increased on the wealthy with the Revenue Reconciliation Act. In 1993, President Clinton signed an act of the same name, which cut taxes by $152 billion and included a cut in capital-gains tax for individuals, a $500 per child tax credit and tax incentives for education. The IRS Restructuring And Reform Act of 1998 prompted the most comprehensive reorganization and modernization of the IRS in nearly half a century.

During the Bush administration, four tax cut laws went into effect, the largest being the one in 2001. It was estimated to save taxpayers $1.3 trillion over ten years, making it the third largest tax cut since World War II. It also created a new lowest rate, 10 percent, for the first several thousand dollars earned and a schedule of incremental tax cuts that would eventually double the child tax credit from $500 to $1,000 and adjust middle-income brackets.

The main headquarters of the IRS is located at 1111 Constitution Avenue, NW, in Washington, DC. Its unofficial mottoes are: "Working to put service first" and "Service plus enforcement equals compliance." Speaking unofficially myself, I can only say that no matter what they call themselves, the slip of tongue "Infernal Revenue Service" still applies and always will as far as my money is concerned. How about you?Did you know . . .

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Jan Zobel is an enrolled agent with the IRS and has prepared over 6,000 tax returns. Her book draws upon her experience to help people new to small business get a basic understanding of recordkeeping, accounting, and taxation issues. How to make your quarterly estimated tax payments, what expenses are deductible, how to minimize the chances of an audit; this book has excellent chapters.

From start-up to success, you need to Deduct It! Let this book show you how to maximize the business deductions you're entitled to  quickly, easily and legally. Comprehensive yet easy to read with many interesting and relevant examples, it is organized into practical categories featuring common deductions. The 2nd edition is completely updated with all the latest tax information and numbers for 2006.